What is a Secured Credit Card?
A credit card is a financial instrument made available to an account holder by a bank. The credit card holder is given a pre-set limit of the credit card. Hence the account holder can carry out cashless transactions.
But the credit card is not given by the bank to all the customers, only a few people can use the credit card. If the account holder has a bad credit history, then the bank does not give him a credit card.
Generally, the bank offers this facility to those account holders who have a credit score of 750 or above. This condition is apply to regular credit card holders.
On the other hand, the bank provides the facility of secured credit cards to the person who has a bad credit score. In this article, we will learn about what is a secured credit card.
What is a Secured Credit Card
As the name suggests, a secured credit card is a credit card that is exchanged for a cash collateral deposit (a fixed deposit held with the card issuing bank). A secured credit card is given to people who are unable to get a normal card. Such cards are secured because the bank has the right to recover its debt by debiting its fixed deposit account in case of non-payment of the credit card bill from the credit card holder.
The cardholder cannot close his fixed deposit account as long as the secured card remains with him. Usually, a bank offers a card with a maximum limit of 85% in return for a fixed deposit. The deposit works like collateral. Despite this fact, both the card and fixed deposit work like a regular card deposit. You also get interested in that fixed deposit.
How should this card be taken?
After understanding What is a Secured Credit Card, now we can learn the benefits of secured credit card. A secured credit card may be a favorable credit card for you
- You are unemployed.
- The monthly income is less than the minimum income limit set by the bank.
- Your CIBIL score is low.
- You work in a ‘blacklisted company in the eyes of the bank.
- You live in an area that is blacklisted.
Benefits of Secured Credit Cards
- A secured credit card can be used like any other regular secured credit card.
- It helps in building a credit history.
- It also helps improve your credit score, which increases your chances of getting a loan, especially a large one, in the future. To keep your credit score in good standing, you just need to keep paying your credit card bills on time.
- There is no extra charge for taking a credit card in exchange for a fixed deposit. This helps the cardholder to earn interest on a fixed deposit account as well as increase their credit limit without any extra cost.
- It is a secured credit card and it is provided to the applicant after a collateral deposit, so it gets approved very quickly and easily.
- some secured credit cards give their customers a grace period, which means that they get a few extra days to pay their bills if they are late.
- Since this type of card is given instead of an individual’s fixed deposit, the interest rates applicable on this type of credit card are much lower as compared to regular credit cards. In case of non-payment of your credit card bill, banks can easily recover your money by breaking your fixed deposit.
- A secured credit card not only helps you borrow but also helps you improve your credit score, as long as you keep paying your bills on time and don’t make any mistakes.
Difference between secured credit cards and unsecured credit card
Secured Credit Card (What is a Secured Credit Card) –
- Secured credit cards generally does not require any credit history. In this, you have no collateral. Banks usually issue such credit cards easily against your Fixed Deposit (FD).
- Unsecured credit cards are better for you if your income is not certain, or you do not have any proof to show your income. These are also beneficial for people who have no credit score and may have to take a home loan or vehicle loan shortly. For this, banks require your credit score.
- In this way, you can prepare your credit history through a secured credit card.
- The important thing is that you have to keep some collateral from the bank for this credit card. This is usually a bank FD.
- But, the damage to this credit card is that your FD is linked with this credit card. And you can’t redeem your FD in the middle. No matter how much you need it.
Unsecured Credit Card –
- In this category come those with good credit history and good bank customers. Banks offer them credit cards.
- Banks do not issue unsecured credit cards to anyone. For example, people who have no credit history can’t find credit cards.
- If you have a fixed income and you have a good credit history and credit score, getting an unsecured credit card is a good option for you.